All-Weather Portfolio Alert (DBC)
I wanted to repeat, one last time, what was stated in the alert yesterday.
We have several positions that need to be rolled to higher strikes. The deltas of our LEAPS contract and short calls are at parity, so I want to buy back my short calls and sell more further out in duration and at a higher strike price.
The ongoing rally has created some nice gains for our positions, but now we need to extend our deltas once again so we can continue to take advantage of any further upside.
For those who are new to the service. I will be adding 10 brand-new positions in the Dogs of the Dow at the onset of 2024. I will also be rolling my current LEAPS in the other passive portfolios (All-Weather, Yale Endowment) closer to the January 19 expiration cycle (with a few exceptions), if not sooner. This should give everyone an opportunity to get into new positions and start fresh. As a reminder, I typically buy LEAPS two years out in time, with the intent of selling them when they have 10-12 months left. Once sold, I immediately buy more LEAPS going out two years in time… and repeat this process as long as I am willing to hold the position.
However, as always, if you wish to open a new position now, all of the pertinent information can be found below.
Invesco DB Commodity Index ETF (DBC)
DBC is currently trading for 22.22.
The LEAPS for 2026 have yet to be introduced. When they are introduced (most likely over the next expiration cycle) I plan to sell my current LEAPS and purchase more.
We currently own the DBC January 17, 2025, 21 call LEAPS contract at $4.80. You must own LEAPS in order to use this strategy.
If you are new to the position, based on our approach, the LEAPS contract that works best is the one with a current delta of 0.80: the January 17, 2025, 17 calls.
We typically initiate a LEAPS position, with a delta of roughly 0.80, that has roughly 18 to 24 months left until expiration.
Also, if you wish to enter the position and are uncertain about which LEAPS to purchase, please refer to the reports section of your subscriber page or our latest subscriber-exclusive webinar in which I go through the process, step by step, of entering a new position of an already established position.
Here is the trade (you must own LEAPS in DBC before placing the trade, otherwise you will be naked short calls):
Once you have LEAPS in your possession:
Sell to open DBC February 16, 2024, 23 call for roughly $0.30 or more. (Adjust accordingly, prices may vary from time of alert.)
Premium received: 6.3%
Once the initial LEAPS purchase occurs, we maintain the position and focus on selling near-term call premium against our LEAPS, lowering the original cost basis of $4.80 (or the price at which you purchased your LEAPS) with each and every transaction.
We can continue to sell calls against our LEAPS contract every month or so to lower the total capital outlay. But remember, options have a limited life, so when we get closer to the LEAPS contract’s expiration, we will simply sell the contract and use the proceeds to continue our poor man’s covered call strategy in DBC.
As always, if you have any questions, please do not hesitate to email me at andy@cabotwealth.com.
Yale Endowment Portfolio - SPDR S&P 500 ETF (SPY)
SPY is currently trading for 470.40.
In the Yale Endowment portfolio, we currently own the SPY January 17, 2025, 345 call LEAPS contract at $98.00. You must own LEAPS in order to use this strategy.
If you are new to the position, based on our approach, the LEAPS contract that works best is the one with a current delta of 0.80: the January 16, 2026, 405 calls.
We typically initiate a LEAPS position, with a delta of roughly 0.80, that has roughly 18 to 24 months left until expiration.
Here is the trade (you must own LEAPS in SPY before placing the trade, otherwise you will be naked short calls):
Buy to close SPY January 19, 2024, 463 call for roughly $12.75. (Adjust accordingly, prices may vary from time of alert.)
Sell to open SPY January 19, 2024, 476 call for roughly $4.65. (Adjust accordingly, prices may vary from time of alert.)
Premium received: 4.8%
Once the initial LEAPS purchase occurs, we maintain the position and focus on selling near-term call premium against our LEAPS, lowering the original cost basis of $98.00 (or the price at which you purchased your LEAPS) with each and every transaction.
We can continue to sell calls against our LEAPS contract every month or so to lower the total capital outlay. But remember, options have a limited life, so when we get closer to the LEAPS contract’s expiration, we will simply sell the contract and use the proceeds to continue our poor man’s covered call strategy in SPY.
An alternative way to approach a poor man’s covered call, if you are a bit more bullish on the stock, is to buy two LEAPS for every call sold. This way you can benefit from the additional upside past your chosen short strike, yet still participate in the benefits of selling premium.
As always, if you have any questions, please feel free to email me at andy@cabotwealth.com.